LONDON: FirstGroup plc has entered into an agreement for the sale of First Student and First Transit to EQT Infrastructure, a news release said.

David Martin, FirstGroup Chairman said: “We are delighted to announce the sale of our North American contract divisions First Student and First Transit to EQT Infrastructure for $4.6bn.

This transaction, which follows a strategic review by the Board of all options to unlock value, enables FirstGroup to address its long-standing liabilities, make a substantial contribution to its UK Bus and Group pension schemes and return value to shareholders, while ensuring the ongoing business has the appropriate financial strength and flexibility to deliver on its goals.

On behalf of the Board, I would like to thank all of our employees for their hard work and commitment in dealing with the immense challenges of the past year, and commend the team for delivering on the Board’s strategic objective to rationalise the portfolio.”

Matthew Gregory, FirstGroup Chief Executive said: “We are pleased to have agreed the sale of First Student and First Transit in a transaction which recognises their full strategic value. Both are resilient, high quality businesses with strong prospects for returning to normal levels of service following the pandemic.

Our colleagues at First Student and First Transit have built excellent relationships with their customers over many years, and we are proud of their commitment and expertise. I would like to pay tribute to everyone in these businesses and acknowledge the vital role they play in their communities, both now and for many years to come.

As economies begin to emerge from the pandemic restrictions and society begins the process of building back better, the vital role of public transport is clear. The services we provide are critical to economic activity and social objectives including ‘levelling up’, and play an important role in combating climate change and helping local communities flourish.

Going forward, FirstGroup will be a more focused, resilient business that is in a strong position to deliver for bus and rail passengers in the UK, continue investing in its zero-emissions fleet strategy and play a key role in meeting society’s broader ESG goals.”

Highlights:

• c.£3.3bn ($4.6bn) headline enterprise value, including First Transit earnout of up to c.£170m
• Transaction fully recognises the long-term, strategic value of First Student and First Transit – headline multiple of 8.9x combined FY20 EBITDA (on a pre-IFRS 16 basis)
• c.£2,190m initial net proceeds (after deducting First Student and First Transit self-insurance liabilities valued at c.£390m and c.£505m in debt and debt-like items, net working capital and other adjustments) to be used in addressing longstanding liabilities, ensuring the Group has sufficient means for the future development of its retained businesses, and enabling a return of value to shareholders:
• c.£1,345m to be used to reduce indebtedness (including £300m CCFF repayment to UK Government) and to derisk other liabilities (including for North American legacy pensions and self-insurance)
• £336m contribution to the UK Bus and Group pension schemes (of which £116m to be held in escrow), enabling move to low dependency funding position 
• c.£100m initial pro forma Retained Group net debt to ensure adequate financial resources are available
• c.£365m proposed return of value (30 pence per share) to shareholders during current calendar year
• Potential for further distributions to shareholders in due course, including following resolution of Greyhound, crystallisation of the First Transit earnout, and as UK end markets recover
• Ongoing FirstGroup will be a leader in public transportation focused on the UK, with a strong platform on which to create sustainable value:
• Well-capitalised and de-risked balance sheet
• Cash generative operating model that will support an attractive dividend
• Critical enabler of economic, social and environmental goals at key inflection point for public transport
• Transaction subject to FirstGroup shareholder approval; circular to be published as soon as practicable
• Sale completion expected in calendar H2 2021 following North American regulatory approval timetable
• Recent trading: Group expects adjusted operating profit for the 2021 financial year to be ahead of management’s previous expectations; current liquidity in excess of £900m

First Student is the largest provider of student transportation in North America, operating in 435 locations across 40 US states and seven Canadian provinces. First Student provides safe, reliable and cost-effective transportation services that help school districts focus on providing students with the best possible education. It also has a strong charter business for student and non-school trips. The business has a wholly-owned fleet of c.39,500 revenue-producing vehicles and operates a further c.2,500 leased or customer-owned vehicles.

First Transit is one of the largest private sector providers of public transit management and contracting services in North America, managing fixed route and shuttle bus services, paratransit operations, call centres for accessible transportation and other light transit activities. The business conducted over 300m passenger journeys in FY20 and owns or operates 12,500 vehicles. The business has a well-established platform with the ability to capture long-term growth in evolving transit management markets.

www.firstgroupplc.com